Global finance

2023 year in review

Investment Outlook 2024

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2023 - year in review

Brighter outlook for US earnings

Active vs Passive

Post-peak interest rate environment

Our asset allocation

The maturity of responsible investing

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Investors and policymakers faced a challenging macroeconomic environment as we entered 2023, characterised by high inflation and sluggish economic growth. However, as we advanced through the year, central banks made good progress rebalancing the global economy, most noticeably in the US. This has created an attractive backdrop for investing.

The (re)balance of growth and inflation

The US jobs market has undergone a (re)balancing act. There are fewer new jobs, while the number of people working has risen. In other words, the economy has seen people return to the labour force with the impact of a higher cost of living. This has moderated rising wage pressure without the need for job losses.

Fed can stay patient

This is important because in 2022 the high level of new US jobs meant demand for workers far exceeded supply. It had the consequence of pushing up wages, and that pressure is now easing.

As we embark on 2024, the US economy is characterised by a healthier balance of resilient growth and lower inflation that’s within the neighbourhood of the Federal Reserve’s (Fed’s) 2% target. The backdrop allows the Fed to remain patient with respect to interest rates, and it creates an attractive outlook for multi-asset portfolios.

US economy holds firm

The Fed raised interest rates by 5.25% from March 2022 to July 2023, with the aim of moderating higher than expected post-lockdown inflation.

US economic growth has displayed resilience in the face of aggressive interest rate rises, which turned out to be one of the big surprises of last year.

US economy is less interest rate sensitive

Mortgages played a vital role in this. They are normally key for monetary policy to impact the economy – interest rates rise, mortgages cost more, people spend less, economic growth slows and inflation falls. In the US, this has not played out fully because the majority of home loans are long-dated 30-year fixed-rate mortgages. Most homeowners fixed their mortgages during the low interest rate era so it’s new homebuyers being impacted by higher mortgage rates.

Sluggish economic growth in UK

In contrast, the UK is a more interest rate-sensitive economy. Mortgages tend to be fixed for two to five years, and refinancing activity has progressively had an impact on consumer spending behaviour. This has contributed to the more sluggish economic growth experienced in the UK last year.

Growth can beat expectations

As we head into 2024, the global economy can outperform low consensus expectations. Regional divergences are likely and will create opportunities – specifically in the US, which could outperform given robust real income growth. Also, Japan will likely benefit from a looser monetary and fiscal backdrop relative to other developed economies. Disinflation is likely to continue, albeit at a slower pace than in 2023, as pandemic distortions continue to normalise and shelter inflation continues to slow.

The implications of this for multi-asset portfolios have been mixed, albeit leaning towards the positive. Equities have performed well, as better than expected growth fuelled expectations that company performance would improve. In contrast, government bond performance has been more muted, given resilient growth led central banks to increase interest rates more than was anticipated at the start of the year.

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